What is Outsourcing?

Introduction Outsourcing is the process by which a company contracts another company to provide particular services. These services/ functions would be otherwise carried out in-house, by the companys own employees. Outsourcing is becoming more and more popular in todays business environment, and most companies outsource some work or other. Call centre services, payroll, maintenance etc are some of the kinds of work typically outsourced. Generally, companies outsource functions that are non-core to their business. The firms that outsource work are known by the terms client and buyer. The firms to which work is outsourced are known variously as vendors, third-party providers or service providers. Advantages of Outsourcing There could be several reasons why companies outsource work. But the foremost reason is the money it saves. Many service providers can offer to get the work done at lower costs, as they have fewer overhead expenses and perhaps operate in a different economical environment. In outsourcing, it is often narrow functions such as payroll, data entry etc that are given to specialist vendors. These specialist companies can therefore do the work more efficiently as they have specialized tools, facilities and personnel trained for that particular kind of work. When a company outsources peripheral work, it is able to concentrate on core business issues. The details are taken care of by specialists, and the companys own management professionals have more time and resources at hand for working on the most crucial issues within the company. Outsourcing is also an excellent option to a company that plans to expand geographically, as the company can start its operations in a different country more inexpensively through a local provider. Different Kinds of Outsourcing There are several different kinds of outsourcing, based on the nature of work outsourced. As we saw earlier, some companies tie up with service providers for narrow functions. However it is also common these days to outsource entire operations. This type of outsourcing can be placed in two broad categories, namely Information Technology Outsourcing (ITO) and Business Process Outsourcing (BPO). Business process outsourcing can again be sub divided into call centre outsourcing, human resources outsourcing (HRO), finance and accounting outsourcing and claims processing outsourcing. When entire operations are outsourced this way, the contract can run into millions and billions of dollars. It is common for the clients employees to be transferred to the vendor company. Companies like IBM, HP, EDS and Accenture are some of the leading service providers in the outsourcing business. The Process A company outsourcing work goes about the process in four stages. As the first step, it has to develop the strategy for outsourcing. This means that the company has to first of all identify its business case for outsourcing, and also have a clear idea of the role of outsourcing in its business. The next step is to evaluate potential service providers and decide on projects and locations. Contract development comes as the next step, where the buyer and vendor negotiate and settle on legal, pricing and service level agreement terms. The outsourcing contract is on from this stage, and in the fourth stage the buyer has to manage the outsourcing relationship. Successful Outsourcing Whatever the business case, the success of an outsourcing relationship depends on the following factors. The client organization should have set up proper executive-level support for the outsourcing project. It should also have ongoing communication with both the service provider and in-house departments and personnel involved. It is also important to manage the outsourcing relationship with the service provider along the right track. And last but not the least, both the client and vendor should allow for flexibility to accommodate changing business needs.

Challenges and Problems A standard challenging situation in outsourcing is offshore outsourcing. Language, culture and time zone can all create problems. With outsourcing, sometimes a company loses direct contact with its clients, thus preventing it from developing lasting customer relationships. Delayed communications or implementation is another potential trouble zone. These render the company in a situation of being in less control than desired. Also, sensitive information may become more vulnerable when third parties are brought into the picture. With both benefits and disadvantages in the picture, it is important that a company evaluates and assesses its needs and situation before joining the outsourcing bandwagon.

Concept

A human resources department is a critical component of employee well-being in any business, no matter how small. HR responsibilities include payroll, benefits, hiring, firing, and keeping up to date with state and federal tax laws. Any mix-up concerning these issues can cause major legal problems for your business, as well as major employee dissatisfaction. But small businesses often don't have the staff or the budget to properly handle the nitty-gritty details of HR. Because of this, more and more small businesses are beginning to outsource their HR needs. HR outsourcing services generally fall into four categories: PEOs, BPOs, ASPs or e-services. The terms are used loosely, so a big tip is to know exactly what the outsourcing firm you're investigating offers, especially when it comes to employee liability. A Professional Employer Organization (PEO) assumes full responsibility for your company's HR administration. It becomes a co-employer of your company's workers by taking full legal responsibility of your employees, including having the final say in hiring, firing, and the amount of money employees make. The PEO and business owner become partners, essentially, with the PEO handling all the HR aspects and the business handling all other aspects of the company. By proper definition, a service is only a PEO when it takes legal responsibility for employees. But take note--some HR outsourcing services like to use the recognized term "PEO" when they handle the primary aspects of HR like payroll and benefits, yet don't take this legal partnership. Business Process Outsourcing (BPO) is a broad term referring to outsourcing in all fields, not just HR. A BPO differentiates itself by either putting in new technology or applying existing technology in a new way to improve a process. Specifically in HR, a BPO would make sure a company's HR system is supported by the latest technologies, such as self-access and HR data warehousing. Application service providers (ASPs) host software on the Web and rent it to users--some ASPs host HR software. Some are well-known packaged applications (People Soft) while others are customized HR software developed by the vendor. These software programs can manage payroll, benefits and more. E-services are those HR services that are web-based. Both BPOs and ASPs are often referred to as e-services.

It's important that you understand these service terms, but don't get too sidetracked by the names when interviewing potential outsourcing firms. The key to hiring the right outsourcing firm is knowing what services your company needs and then find an outsourcing firm that can provide them. When you outsource HR functions, some services go with the "all-or-nothing" approach, requiring that they handle all your HR functions or none at all. Others offer their services "a la carte," meaning you can pick and choose from the services they offer. Typical services include:

Payroll administration, including produce checks, handling taxes, and dealing with sick time and vacation time. Employee benefits, including health, medical and life insurance, 401(k) plans and cafeteria plans. HR management, including recruiting, hiring and firing. This also includes background interviews, exit interviews and wage reviews. Risk management, including workers' compensation, dispute resolution, safety inspection, office policies and handbooks.

Some services are full-service and will provide these as well as additional services like on-call consultants, who will come in to train or even settle a dispute. Online services tend to be limited in their offerings, but you'll get added options like web access, which will allow you to view information (like benefits packages) and even make changes to such information online. Most will give you and your employees access to view their benefits plans, enroll in benefits, read policies, and make changes to current data. What are the biggest advantages to outsourcing your HR needs? Does your business allow you the time to personally deal with federal and state employment laws? A big reason businesses turn to HR services is that they don't have the time, or expertise, to deal with this. And if you choose to go with a PEO, you can pass the legal responsibility of your employees onto them. You may also save money. You can usually count on a reduced benefits rate when outsourcing to HR services. Because they buy so often from vendors, they usually get a discounted rate that they pass on to you. If you opt for an online service (ASP/e-service), you don't have to purchase software, install it, and worry about configuring it. An ASP business model is hosting software, so you don't have to bother with additional software or installation. So what are some key things you'll have to give up if you favor outsourcing to hiring a full-time, in-house HR department? There are some definite drawbacks to not having an HR manager in-house. An in-house HR person handles perks that you can't necessarily count on an outsourcing service to carry out--like looking into group offerings, building employee incentive programs, even taking care of recognition for employees' birthdays. And employees may want someone in-house--an impartial co-worker they can trust and see daily--to turn to if they have a work-related problem or dispute with another co-worker. Because an in-house HR person interacts daily with your employees, they will likely have more of an interest in your employees. For example, employees often appreciate having someone on staff who will help negotiate in their favor for certain benefits that are critical these days for employee retention (like 401(k) plans and vacation policies). Also, in the case of using a PEO, giving up the right to hire and fire your employees may not be desirable for your particular business. Most PEOs insist that they have the final right to hire, fire, and discipline employees. While having the extra time and not having to deal with the stress of this may be appealing, you may not want this responsibility out of your hands.

And if you decide to use an e-service, the same issues you'd have with any ASP remain. When everything is stored and handled online, there are concerns about security as well as potential crashes, both of which can be detrimental to your business. Common complaints about HR outsourcing range from payroll mix-ups to payroll not being deposited on time to denied medical claims. So should you consider outsourcing? If you have fewer than 100 employees, it might not be a bad idea. At this size, you often don't have the resources for an in-house HR staff, so outsourcing is just right for you. You don't have to worry about managing all the details that are so critical to HR in your business, and most small-business owners just don't have the skills and experience to do so. Remember, HR functions must be handled correctly as close to 100 percent of the time as possible; slip-ups can cause your business major problems. If you have at least 12 employees, consider a PEO. Most PEOs only take on businesses with at least a dozen employees. Get recommendations and references for PEOs, and consider one that is part of the NAPEO (National Association of Professional Employment Organizations). The NAPEO is committed to educating PEOs. If a PEO is a member, it's a good sign that they are committed to being the best in the field. If you're even smaller, online services are the way to go. These services are tailored to work with all sizes of businesses, even the smallest. You don't have to give up legal responsibility just yet, and you'll be able to easily access your information online. And since the charge is usually by user, you won't be overpaying. If you're uncertain about outsourcing everything but know you don't have the staff or experience to keep it in-house, try outsourcing only certain parts, such as payroll and benefits. You can also purchase HR software right off the shelf to support any in-house efforts.

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Human Resource Outsourcing

Outsourcing, or subcontracting responsibility for completing certain business functions, has been a fact of corporate life for a number of years. Traditionally, corporations have outsourced individual business functions, such as computer hardware infrastructure or payroll processing, to niche providers. In deciding to outsource HR functions, most companies choose to outsource the tactical, transaction-related activities while keeping strategic functions in-house. These tactical activities include functions such as payroll processing, human resources administration (adding and terminating employees and the like) and benefits administration. These functions affect the performance of virtually every part of the company and consume a tremendous amount of the HR departments time and energy. Many companies report that these transaction oriented tasks require more than 80% of the HR staffs time. Likewise, implementing the systems to support these functions is complicated, time-consuming and expensive. Once implemented, maintaining HRIS systems over their expected life cycle can approach or exceed the cost of the original implementation. Traditional, niche oriented HRO service providers (such as payroll service bureaus) are realizing that they must expand their services offerings to remain competitive. Outsourcing a single function is rapidly moving toward outsourcing an integrated set of business processes. A single source provider that can deliver solutions across multiple business functions can service the client better and cheaper than several niche vendors, due to economies of scale.

HROs are ideal for medium to large organizations that are looking for ways to reduce costs without losing the direct employee/employer relationship (no co-employment). Standardized, high-volume, high-cost, administrative tasks are the best candidates for outsourcing. Decisions are usually driven by the need to reduce in house HR support and overhead. Access to better technology at reduced costs is another driver. Functions outsourced to HRO service providers vary depending on internal department requirements. Most HROs allow flexible combinations of their product and service offerings to meet client needs. HROs offer:

Self-Service or supported HR and payroll related technology Scalability Employee education and training Recruiting services Benefits management and administration Payroll services Risk management HR management

Models

Now, this challenge can be simplified by carefully considering the five outsourcing models:

staff augmentation

out-tasking project-based outsourcing managed services and build-operate-transfer (BOT)

Some Outsourcing Examples

Pepsico: Signed a 10 year deal with Hewitt Associates Delta Airlines: Signed a deal with Affiliated Computer Services for 7 years, valued at $120 million. This will save them an estimated $50 million on updating human resources technology. As part of the deal a governance team will monitor 50 metrics in hope of ensuring that all expectations are met. Duke Energy: Has a 7 1/2-year contract with Hewitt Associates to handle payroll, performance management, and other HR back-office administrative services, AT&T: Has a 7 year deal with Aon Human Capital Services to provide end-to-end human resources administration, signed in 2002. After aligning the deal's structure, expectations and its 45 metrics, they have seen "double digit" savings. UPS: Now outsourcing 401(k) management, health care administration, the hiring process, employment verifications, relocation services, new-hire compliance data, administration of retirement plans, and its bonus stock program. Others examples include Bank of America, Prudential Financial, and Motorola signing comprehensive human resources outsourcing deals.

Four Trends That are Changing Human Resources Outsourcing | Article

Beth Ellyn Rosenthal, Editor | January 1, 2010 | 1 comment

Renewals are the big news in human resources outsourcing. Mohammed Haque, Vice President & Head of Enterprise Solutions Service practice at Genpact, estimates about $40 billion in contracts will come up for renewal from 2010-2012. How buyers go about renewals is about to change. Buyers are becoming much more aggressive in going out and getting a look at whats going on in the landscape, says Rohail Khan, Executive Managing Director for ACS Total Benefits Outsourcing. He predicts the automatic sole-source renewal without a market check is going the way of the dodo bird because organizations want more visibility to the bottom line. They want to know the value of the suppliers contribution. In the past, he says renewals were typically sole source. Buyers are also hiring more third-party advisors to help them out with their renewals, he adds. Buyers are no longer willing to assume their suppliers are providing value. The current economy accelerated this trend, he reports. Buyers want to know if they are getting the right value for their money, he explains. Then the question becomes: Are we with a partner thats investing and innovative? Because today its not just about cost effectiveness. Buyers, he says, want to be sure their suppliers will be able to serve them as they move forward.

Shifting adoption patterns: taking a more focused approach

With buyers more critically evaluating the benefits they stand to achieve from HR outsourcing, more are considering phased approaches that focus on one defined area at a time, according to Katrina Menzigian, Vice President, BPO Research, Everest Group. These areas may be along individual process areas such as multi-country payroll, benefits, or recruitment or along categories of HR processes, transactional versus talent management, states Menzigian. Several factors are driving this tighter focus, including the desire to match up-front investment with pay-back benefits, the need to feel confident in supplier capabilities, and the realities of a shifting supplier landscape. In the near future, its conceivable that some clients will have to balance a mix of suppliers until more suppliers are able to demonstrate a broader set of compelling capabilities, she says.

The importance of global capabilities

Don Schulman, General Manager, Finance and Administration for IBM, adds that buyers facing renewal are also now asking whether they want their work split across multiple outsourcers or instead want to consolidate it all together within a partnership that enables standardization across multiple locations, processes, and clients one that has a flexible model thats global in nature. Abid Ali, Head of BPO at Tata Consultancy Services, agrees global capabilities will become even more important in supplier selection. While India has a significant advantage in delivering BPO services, customers are working with providers that have a global delivery footprint. He says they are looking for existing suppliers that can deliver in new markets for them rather than looking for new suppliers in those areas. Sue Marks, CEO of Pinstripe, says buyers with operations in 50 countries, for example, will want to select a supplier with proven capabilities in all those regions. It is extremely important to understand the local nuances, she explains. Khan points out multinational companies are now asking for global benefits administration solutions. He says ACS is developing technology so that these companies can tackle the big unknown chunk of spending theyre not aware of. We can help them understand their overall global spend.

Process convergence
Process convergence is another trend. In the past, HR organizations viewed employee retirement and health/welfare selection decisions as separate transactions. There werent a lot of connect points, Khan points out. Today he says progressive HR managers are asking how they can make health and welfare decisions converge. He says both buyers and suppliers are trying to figure out how this will impact HR decisions going forward.

Changes in benefits administration

A fourth trend is the integration of what Khan calls the natural adjacencies of benefits administration. They are things like wellness, voluntary benefits, absence management, and on- and off-boarding. All have advantages for HR buyers. For example, a more efficient offboarding process can ensure an organization doesnt pay people longer than it should. And enterprises can minimize their healthcare costs with a wellness program to change behavior. Buyers want to extend the definition of HR outsourcing to include these things, he says. In this economy, employers will not be able to give employees as many benefits as they historically have offered. Finding ways to help employees derive benefits will absolutely be part of the HRO requirement, Khan continues. In addition, the current economic situation is forcing CEOs to have laser vision on their costs. HR spend is part of the selling, general, and administrative (SG&A) expenses. Organizations are understanding the value of a wellness program. They can understand where absenteeism, which is a direct hit to their bottom line, is showing up. They will be forced to focus on solving these kinds of problems, the ACS executive continues. Khan posits these types of buyer challenges will force providers to focus on innovation and investment to expand the notion of benefits administration to the natural adjacencies.

The new preference for platforms

Marks points out early HRO buyers outsourced bits and pieces of the process. Now, buyers are looking for the complete end-to-end solution where the supplier can provide the process services as well as the platform. Adds Khan, Its not going to be good enough just to be an administrator and a manager of transactions. Haque says buyers want to outsource the complete HRO services package, which includes talent management, recruitment, learning, and development as long as the supplier has developed the core HR services like payroll, time and attendance, and workflow administration. In the past, people outsourced the process or the platform. Now they want to outsource them together and have the supplier charge them on a per-employee per-year basis. Khan predicts this convergence will force providers to be clearer and more explicit about their investment strategies and how they translate innovation into real capabilities that help buyers solve problems. One thing is sure: Providers can no longer milk their 15-year-old platforms. Instead, they will have to constantly reinvent their offer because thats what buyers will demand. He says this is both a dramatic change and challenge; suppliers not willing to invest will lose market share because there are too many suppliers that will invest. Marks believes the only way to adjust is to leverage technology to improve your efficiency and make your workload manageable. She says the demand is greater than ever before and the technology has evolved, so there are no more excuses. In her opinion, HR leaders need to step up and support their teams with technology that addresses their need to manage the swelling pipeline of passive and active candidates and deliver the best possible candidates to those companies who are relying on them now, more than ever, for their survival. Cloud-based services and SaaS applications can evolve the way suppliers design traditional HR services. They can accelerate change in shared services initiatives and not just transform but revolutionize the organization when combined with HRO and RPO, she says. In sum, Marks says the economic turbulence is a tremendous opportunity for HR leaders to come back in a new, more focused, and more impactful way. She says, going forward, HR leaders will have to help their buyer organizations garner the capability to drive the right business outcomes. Economic modeling, corporate governance, strategic marketing all will become part of the new HR professionals tool kit. HR will become less about administration and compliance and more about executing on strategy and capability, believes the Pinstripe CEO. Hopefully these changes will help corporations become more profitable and employees become healthier, wealthier, and more productive.

http://www.executivebrief.com/outsourcing/outsourcing-models/

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Figure 2 Reasons for HR Outsourcing

(Number of Respondents = 168) 56% 55% 47% 45% 44% 42% 41% 36% 33% 27% 23% 18% 13% 10% 5% 0% 10% 20% 30% 40% 50% 60% To allow the company to focus on its core business To reduce the number of HR staff and related staff expenses To provide consistent/improved service delivery To allow HR staff to focus more on strategy To make up for the lack of in-house talent/expertise To gain access to vendor technology To avoid the cost of major investments in technology To make up for a reduction in HR staff To improve metrics/measurement Other
Note: Percentages do not total 100% as respondents were allowed to indicate multiple response options. Based on HR professionals from organizations that currently outsource one or more HR functions. Source: SHRM Human Resource Outsourcing Survey Report

Human Resource

Strategic

in todays business environment, which has become highly competitive and much more global, reducing the cost of services provided by the businesses and achieving core competency in niche areas, human resource outsourcing has become need of the hour. As is evident by the name itself, human resource outsourcing is outsourcing some or all the functions of the human resource management to a third party vendor in order to save the cost of administration and reduce the burden of human resource management on the top and middle level management of the company. A Strategic Business Decision The various types of functions which can be outsourced in the form of human resource outsourcing includes overseeing organizational structure and staffing requirement, the hiring of various personnel, the training needs of the personnel and their development, tracking

department goals, objectives and strategies, benefits administration and employee orientation programs. Until quite recently, outsourcing really meant that areas in which the company doesnt have core competency should be given to a third party vendor who can do it more professionally and save costs too. But when it comes to human resource outsourcing, it is not the case where companies cant manage a HR department on their own, in fact they dont want to manage a HR department on their own, and so more and more companies are now in-part or totally outsourcing their human resource department to third party vendors. This strategic decision makes the companies more focused on their core competencies and they become more goal oriented where top management has all the time to focus on furthering business development rather than on human resource management. Thus, human resource outsourcing is a strategic decision to make. ]]> Advantages of Human Resource Outsourcing The advantages of human resource outsourcing are many, including the fact that companies can get rid of an allied function such as human resource management and thus focus on their core business values and targets, thus streamlining the whole company. Another advantage of human resource outsourcing is greatly reducing operational cost by taking out most of the functions of HR, and thus the savings acquired thus can be used to fuel expansion in other revenue generating. One more advantage of human resource outsourcing is that it reduces the burden on the employees-especially the middle and top management, and thus without having to worry about HR functions, the middle and top management of the company can focus on innovation and strategic growth of the company. Lastly, by human resource outsourcing, the company can enjoy the best of the HR services through the third party vendor, thereby getting premium services at lower prices. On the Flip Side However,experts have pointed out that there may be some disadvantages of human resource outsourcing as well. The main disadvantage being- the loss of control over employee management and employee relationship building. Also, there are some issues of confidentiality and outsourcing of HR services means losing personal touch with the employees and their daily needs or problem areas. These areas, when outsourced, cannot be totally entrusted on third party vendors. Most importantly, the quality delivered in human resource outsourcing is also an area of concern. However,human resource outsourcing has become the latest mantra of the global outsourcing industry and is playing an important role in shaping up the companies of tomorrow, thereby aiding in the process of global economic integration. Accelcia business process outsourcing provides finance and accounting outsourcing, financial accounting services, human resource business process outsourcing, human resource outsourcing, recruitment process outsourcing.

Five Trends Changing HR and HRO Today

On July 5, 2011, in HR Outsourcing, Outsourcing Trends, by Beth Ellyn Rosenthal, Senior Editor

Ten years ago large multinational HRO buyers wanted to implement the HR solutions in their ERP platforms. They wanted technology for HR transactions and data. Now that the IT is as reliable as a dial tone, HR outsourcing providers can step up to the steeper challenge of today: CXOs are asking the HR executives to play the role of strategic business partner, says Maheedharan Thiagarajan, head of solution designs HR services for Infosys. Today, HR leaders need to do more than oversee HR transactions. How? Maheedharan says HR executives today must have a laser focus on talent development and employee engagement. Today employees want exposure to new areas so

they can learn and grow. Employers, needing to be nimble, desire cross-trained employees. These dual needs work together to help the organization, says the Infosys executive. Today, he says HR leaders have to do the following to ensure that HR becomes a strategic partner to the business: 1. Model talent 2. Control attrition 3. Groom and develop talent HR executives at Fortune 500 companies long ago realized they needed outside help to tackle their HR issues. Thats our job, says Maheedharan. Here are the five areas buyers and service providers are working on currently. Together, they make the HR leader a strategic partner.

1. Creating global solutions

The Infosys executive says handling multiple geographies and employees who speak different languages and come from dissimilar backgrounds is high on the list of priorities for most large companies. Couple this trend with the changing nature of work: not all employees want to be FTEs. A U.S.-domiciled Fortune 1000 company typically has branches around the globe. That company experiences a wide variety of hiring scenarios, says Maheedharan. It may want to hire contractors in the U.S. but full-time employees in India and China, he explains. The job of the service provider like Infosys is to fine-tune the talent solutions in the areas of global hiring and right skilling with the right tools and processes.

2. The increasing importance of talent

Maheedharan says talent is the most essential ingredient in business today. Thats why its so important to get it right. For example, a business can hire a super star, but if the cultural fit with the team isnt right, the new hire wont work out. The Infosys executive says training is a key element in HR today. He notes employees will leave if the employer doesnt train or mentor them. You have to motivate employees and make them feel like they are part of the organization or they will leave, he observes. This is especially true in emerging economies, like BRIC (Brazil, Russia, India and China) and South Korea. These economies are galloping, he observes. However, training raises a dilemma. What happens when a company trains employees and a competitor steals them away? The original company just lost its training investment. What to do? Thats where analytics come in.

3. The rise of analytics

The HR technology produces reams of data. Today, Maheedharan says corporations want to leverage that data to make strategic decisions. For example, service providers like Infosys can perform demand modeling to determine what makes employees stay longer or calculate the true cost of attrition. Employers can determine if its more cost effective to keep a valued employee and pay him or her 20 percent more or hire a lower-cost employee, because they can now calculate how long it will take for the tyro to become productiveand profitable. Employers can make these tough decisions with real data, he says. Maheedharan notes HR providers now have analytic dashboards that clock things like timeto-hire and then benchmarks that number to industry standards. The bottom line: better decision-making.

4. The rise of the HR portal

Five years ago self-service HR was the hottest, slickest HR game in town. Today, Maheedharan says enterprises are stepping up to integrated HR portals. In addition to providing the ability to check vacation time 24/7, these portals include: Social media Discussions of life events Polls Latest information on the company Classified ads Travel information about employees on the move Collaboration tools

These portals just require a single sign on, making them easy to use. This contributes to the holy grail of HRO: employee satisfaction.

5. The importance of service: technology is just an enabler

Service delivery, not technology is the end state, insists the Infosys executive. The companys employees must be happy. Too often, he says, technology enthusiasts lost sight of the true goal of HRO. He says the best way to ensure employee satisfaction is to get a good amount of end-user input.

HR Outsourcing: Key Trends and Perspectives

26 October 2011
ANCOR

Irina Lyamina Accounting Process Management ANCOR

Attitude to staffing issues has considerably changed over the last decades. It is becoming increasingly more evident that efficiency, motivation and creativity of the personnel are the key competitive advantages that contribute to the success of an enterprise value enhancement strategy. Wide usage of such concepts as staff management, HR management evidences that HR issues are part of the general organizational management system, they are closely interrelated with other managerial elements (for example, company goals setting, strategy development, planning, organization, etc.). HR specialists face an issue that is becoming more acute for them: which problems they can resolve using their own resources and which can be outsourced. Herewith, junction points for different functions within a company should be defined. Thus, payroll that has been traditionally considered as one of the key HR functions that currently can be outsourced. At the same time, conceptual personnel development (in accordance with the strategy and cultural profile of a company) is considered to be the area of activities for HR specialists. The current HR outsourcing trends are as follows:

Recruitment
Specialized recruiters, in this case ANCOR Holding, extensively carry out labor market research. A careful analysis of society's demographic development is required to more efficiently use human resources of older age and define the bottleneck for the younger generation. Services rendered by a professional provider of recruitment process outsourcing allow avoiding extra time and cashing expenses required to support the process and to focus on image building both in the external labor market and within a company. It is the image that is considered to be the major factor of a company's attractiveness that ensures chances to acquire new human resources.

Development of Personnel
The goal of development is to ensure the best match of employees' capabilities and requirements to his/her performance. Assessment of personnel qualification requirements became more complicated due to frequent organizational changes. The labor market of global

companies is expanding, but it is not becoming more transparent. The same situation is observed in the education market, which currently cannot be fully studied even by the largest companies. Specialized providers of personnel assessment services help HR specialists reveal employees' talents and correlate development of employees and a company as a whole.

HR Record Management and Payroll Processing

The current Russian labor legislation requires managing HR records and processing a large number of documents that record employeremployee relationships. A considerable staff of internal HR record-keeping specialists and record-keeping automation software are required to support this function. Payroll requires specialists to be involved and nonproduction costs for acquisition and maintenance of special equipment and software. Outsourcing of these functions has a considerable economic effect and provides extra time for HR specialists to develop a general organizational management system. Many HR management issues should be reviewed taking into consideration that companies are expected to be more client-oriented. The issue of which HR management functions are to be outsourced should be resolved. Generally, expenses and production costs for companies will be more transparent, internal demand issues will be more flexible, and a base will be developed that will comprise efficient solutions for outsourcing certain functions from HR management.

Read more:http://www.themoscowtimes.com/business/business_for_business/article/hr-outsourcing-key-trends-andperspectives/446290.html#ixzz1pUn3TdQC The Moscow Times

6. The Buyer Provider Relationship

Many of the success factors outlined in the appendix relate to the relationship between buyer and provider. The last aspect of HRO I want to look at are the expectations commanding this relationship. Clients sourcing formerly outsourced processes back in21 are still rare but increasing in number, as initial contracts from the last HRO wave are ending. This suggests that a significant gap between both sides expectations might exist. 19 Geert Hofstede, How Cultural Resources Support Business Transformation, conference paper, HR2007 conference, 12. 14. March 2007, Las Vegas, p. 18 20 Geert Hofstede, How Cultural Resources Support Business Transformation, conference paper, HR2007 conference, 12. 14. March 2007, Las Vegas, p. 19 21 As Britannia did with its outsourced HR payroll when they missed flexibility. See Christian Annesley , Britannia insources HR and payroll systems to aid development plans, Computer Weekly, 30.5.2006, p. 12

www.iproconhcm.co.uk

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6.1 Buyers Expectations I discussed the buyers objectives in section 2.3. They expect the provider to deliver at least the same level of service at considerably lower cost. Management in HR also expect that they dont have to expend any effort on the outsourced processes after transformation thus allowing them to focus on strategic tasks22. They also expect the provider to keep very close to the old processes. In one sentence: they ideally expect no changes at all except for a 20% 45% reduction in costs. 6.2 Providers Expectations The provider expects of course to make money out of the HRO contract. To do so and deliver a 20% cost reduction for the client, he must run the outsourced HR functions up to 50 percent cheaper than the customer 23, because marketing and sales as well as governance have to be paid for on top of it. 6.3 The expectations gap To achieve significant cost reduction, providers must be able to apply standardised and efficient designs. However, buyers are often not prepared to allow this. Surveys show that the general readiness to change existing processes towards best practise standards suggested by the provider varies between 20

and 60 percent for several processes. Also, the provider must know exactly which services he is supposed to deliver to calculate a reliable fee. Buyers on the other hand often dont even roughly know what services their HR function provides today. Gartner24 and other sources confirm that buyers rarely do enough analysis and planning to define requirements appropriately. This essentially leads to higher fees than expected, when requirements are widened after the transformation.

M&A 1% Improve IT support 1% Other

Effective HRO Implementation: Lessons From Veterans

The veterans in our survey, some of whom have been in their deals for as many as seven years, represent a rich source of deal experience the good, the bad and the ugly. Here are their views of some of the most critical steps in ensuring an effective implementation: _ Manage turnover. Organizations need to carefully handle the movement of people in and out of the HR outsourcing arrangement. As the deal evolves, the types of skills required of HR team members (the companys and the vendors) will evolve, and the makeup of the team must change to reflect that goal. Rather than fearing turnover of staff and teams, companies need to manage it to their advantage. _ Build the business case. The growing conventional wisdom is that companies should not go it alone on the business case, but instead should seek good advice in developing one. Most outsourced companies agree that building and proving the business case eased implementation down the road. Theyve gotten good at it, and theyve learned from others. _ Proactively communicate both imminent and longer-term change. Careful and frequent communication enhances receptivity across the workforce and helps prepare both employees and managers for the changes ahead. _ Meet implementation deadlines. In interviews, respondents remarked that one key to meeting implementation deadlines is focused governance making sure that people are hitting their goals and objectives with a sense of shared destiny and appropriate penalties for failing to achieve results. _ Practice good governance throughout the outsourcing process. While many organizations believe they have governance under control, this question goes well beyond the basics. Companies need to pay attention to how they manage the whole question of satisfaction and quality once theyve agreed on their cost arrangements and reached basic targets around satisfaction. Because of the growing body of knowledge around outsourcing best practices, more and more companies know what to do and what not to do when it comes to implementation. Indeed, the issue these days is less about whats getting done with HRO than whats not getting done within the rest of the function.

Strategic rationale for competitive advantage The most significant shift in attitudes to outsourcing is the fact that most companies no longer see it merely as a cost-cutting exercise, rather than a strategic tool. While cost-cutting is still the prime motivator for outsourcing, six other highly strategic reasons are: (i) to improve the overall

business performance; (ii) to sharpen business focus;

(iii) for accessing external skills; (iv) for improving quality and efficiency of outsourced process; (v) to achieve competitive advantage; and (vi) to create new revenue sources.
874 The Chartered Accountant December 2005

With efficient HR outsourcing, corporate entities can move away from rigid self sufficient organization structures to an open entity with the flexibility to respond rapidly to new markets and new technologies and to take pleasure in competitive advantage through clear strategic focus, decentralized structure and reduction of and cultural change. Strategic Focus: HR departments often lack a clear strategic focus because they are preoccupied with operational activities. In essence, it is believed that HR departments should outsource many of non-strategic activities. Outsourcing permits HR departments to move away from these routine administrative elements toward a more strategic role. Although outsourcing can be used to sharpen the strategic focus of HR, it is but one component of the strategic transformation process. One Senior Vice President for HR provided perspective by advising that, It is difficult to change your role to strategic by dumping activities via outsourcing. It is easier if you are already in the strategic role. Numerous executives noted how their goals were to shift more of the HR responsibilities to the line managers and to transform the HR staff to an internal consultant role. By considering any aspect of the old HR function as a candidate for outsourcing, the executives were explicitly redefining the roles of their HR staffs. As another HR executive stated, HR departments are more likely to stick to their knitting when they perform only those activities related to the implementation of their companies strategies rather than less essential functions. Decentralised Structure: HR outsourcing is associated with decentralised or matrix structures and extensive internal networking. The company, which relies heavily on internal networking and departmental barriers, has a very informal culture with a heavy emphasis on flexibility. The combination of a decentralized structure, lean staffing, and an informal, fast-paced culture appears to be consistent with its outsourcing arrangements. It is opined that, except for benefits and compensation outsourcing, one does not sign contracts with the HR outsourcing vendors but instead, relies on trust in established relationships. In addition to heavy reliance on outsourcing, the company uses vendors that operate internationally to supply the same service to its operations throughout the world. Decentralisation of the HR function through redeployment of some of its assets to operating units is another strategic rationale for outsourcing. By outsourcing specialized services, the HR function can redeploy HR expertise from the corporate level to provide HR services at the operational level. Reduction of Bureaucracy and Culture Change: HR departments are often criticized for their bureaucratic processes and the constraints they impose on operational flexibility. Thus, an important rationale for outsourcing is to develop a less bureaucratic HR function. As it is stated, successful outsourcing vendors emphasise a customer-service orientation that, in turn, permits the HR executive to address, with reduced HR headcount, only the most extreme cases that need his or her attention. In addition, outsourcing replaces bureaucracy with market forces. As one senior vice president stated, outsourcing allows us to harness the power of the bidding process. Similarly, because of their size and focus, outsourcing firms are often more nimble and agile. As a result, they can often deliver services more quickly than inhouse HR staff.

Benefits of Human Resource Outsourcing The essential logic behind human resource outsourcing nlies in the fact that the company can focus on its core business, delegating specific areas to external experts and thus freeing up resources that can be dedicated to core aspects ofits business. Accessing top-level capabilitiesThe major service suppliers are making importantinvestments in technology, methodologies and people.They are gaining experience working with many clients that are confronting common problems. This combination of specialisation and experience provides the clients with a competitive advantage and helps them to avoid the cost of continually keeping abreast of developments in technology and training. There are also better professional opportunities for professionals that join up with an outsourcing supplier.

Freeing up resources for other purposes Every organisation faces limited resources. HR outsourcing allows an organization to redirect its resources, particularly people, from lateral activities to those with superior added value. People whose energy is focused internally can shift to a more external focus on the client. Commitment to the technological evolution In order to be successful, an outsourcing agreement should be based on a relationship of deep trust, between the service supplier and ones own staff. This closeness, linked to contractual conditions that demand technological updating, ensures the ongoing satisfactory development of all technological infrastructure. Improving the companys focus Outsourcing allows the company to focus on its core business, in delegating operational tasks to a third party. HR outsourcing implies there is an exclusive contact point for operational questions regarding the starting point, whereby numerous supervisors are involved who are dedicated to managing the relationship with suppliers and internal staff, planning, etc. These supervisors can now concentrate on increasing the business. Reducing operating costs Companies that try to do everything themselves often incur substantial costs for research, development, marketing and implementation, which they end up passing on to their clients. The external suppliers smaller cost structure resulting from economies of scale, along with the efficiency derived from specialisation, reduce the companys operational costs and thus provide a clear competitive advantage. Accessing resources not available internally Companies resort to outsourcing because they do not have the resources they need internally. HR outsourcing provides a viable alternative to build up the capacities they need from scratch. Freeing up financial resources HR outsourcing can reduce the need to invest capital funds in non-core business operations. Instead of acquiring the resources by using capital funds, these can be contracted whereby they are paid per service. HR outsourcing can also improve certain financial ratios for the company in eliminating the need to demonstrate a return on capital investments in non-strategic areas. Risk reduction The investments made by any business entity also reflect the risks due to the constantly changing markets, competition, standards, financial circumstances or its own technology. Staying up to date is very risky in the face of all these changes, particularly those that necessitate a sudden transition requiring substantial investments. The outsourcing suppliers make investments on behalf of various clients simultaneously. In sharing the investment, the risk is apportioned, thus significantly reducing the risk to each of the companies involved. Improving management of operations that are complex or difficult to control HR outsourcing does not imply the withdrawal of final responsibility for the processes or operations subject to the service agreement. When there are confrontations with an operation that proves difficult to manage or that is outof control, the organization should carefully analyse what is causing the problem.

The Costs and Disadvantages of HR Outsourcing For every study of HR outsourcing showing its advantages, there are studies pointing to its failure or actually increasing costs. Studies have led to some instances in the way outsourcing is conducted. Some outsourcing consultants now promote co-sourcing, where the client company keeps responsibility for the management of the outsourced activity, but the outside provider supplies consultancy services and experienced personnel on a needs or projects basis. While traditional outsourcing may be suitable for low risk peripheral activities like cleaning or car fleet management, companies want to retain more with higher risk strategic functions. However, the problems and disadvantages associated with HR outsourcing include: v Co-ordination costs relate to the increased costs and difficulties of coordinating production and exchange with several external service providers rather than in-house control; v Quality and service issues arise when there is an incentive for the contractor providing the service to renege on quality, especially where quality is difficult to verify; v Costs of transacting refer to search and selection costs to find out an appropriate contractor. Contractors can often extract post-contractual revenue in the event of unforeseen circumstances due to bargaining advantages. The whole premise of transactions cost theory is that internal transactions are less costly than external ones, which is why firms arise in the first place, to internalise and coordinate market transactions; v Costs of monitoring are an important issue as, with all contractual relationships, the client firm may need to intensify the monitoring of the contracting firms performance in order to minimize the latters incentive to shirk or cut-back on quality and service; v Loss of Control is another

worry factor that may hit a client firm over key areas, including the employment relationship and the management of employees.